(July 26, 2011)—Marylands economy would suffer disproportionately from the likely downsizing of the federal government in coming years, perhaps losing 150,000 jobs if the 22% reduction in spending recommended by the presidents budget commission were implemented, a new report says.

The report commissioned by business group Blueprint Maryland and done by Anirban Basus Sage Policy Group paints a bleak picture of state economy that has come to rely heavily upon the federal government as a source of economic vitality.

The state has arguably taken prosperity for granted, said the report. The business climate has become unappealing, which has translated into outmigration from Maryland to other states of both people and businesses.

The business climate is associated with high taxes, high energy costs, high land costs, collective bargaining, health insurance mandates and a poor reputation, the report said. If the federal government downsizes, Maryland will need to attract significant private sector investment to offset the loss in economic activity.

But that will be difficult because Maryland is not properly positioned to take advantage of its array of economic developments amenities, including its scientific and technical talent, its highly competitive public school system, intermodal transportation network, phenomenal spending power, and high quality of life.

These should make the state appealing, but conducting business here has become far more difficult than it should be.

Little surprising

The study found little that would be surprising to anyone familiar with non-governmental studies of Marylands business environment. What is more remarkable was that it was paid for by a new group created by commercial banker John Delaney, founder and executive chairman of Capital Source of Chevy Chase and a major donor to Democratic Party causes. Delaney started Blueprint Maryland to help encourage more private sector jobs.

The results of our first study indicate what we expected, Delaney said. Our state is vulnerable to the effects of reductions in federal spending that could result in job losses, decreases in state and local tax revenue and a decline in the superb quality of life we all love in Maryland.

The report may not reflect the full extent of federal employment and contracting in Maryland because it does not include most of the spending at the National Security Agency at Fort Meade. We used data from government sources, and those sources apparently do not reflect or do not fully reflect NSA employment, Basu said in response to a question.

Some key findings of the report:

-- Marylands federal employment as a percentage of total jobs is third highest in the nation. It is larger than even Virginia, and only surpassed by D.C. and Hawaii. The federal share was much higher in the early 1990s, when a defense downsizing sent federal employment down.

-- Federal employment is on the rise, while private sector hiring is slumping. Civilian federal government makes up 7.6% of the Maryland economy, the highest for all the states except for D.C.

-- High federal employment, particularly in professional fields, raises the educational level of the state, increasing the number of people with college and advanced degrees, a fact often touted by economic development officials. A cutback would likely produce outmigration of the highly educated, reducing public school achievement.

-- Howard and Montgomery counties skew the educational level of the entire state, with more than half their residents over 25 with bachelors degrees, 20% more than any of the other counties.

-- The report also cites the Tax Foundations ranking of Marylands business tax climate as 44th in the nation. The foundations ranking is often criticized by state officials and nonprofit groups as unduly negative, disregarding other tax factors.

-- The cost of living here is 44th worst in the nation, 25% higher than the national average. Utility costs are 17% higher, grocery costs 10% higher, transportation costs 8% higher. Health insurance costs more, too, because of state mandates for covered services.

The report concludes that the state must begin to address the climate now with the goal of vastly increasing private investment and technology commercialization.

Delaneys group is planning roundtable discussions and an interactive website to explore solutions to the problems identified in the report.